Pre-Mining in Cryptocurrency: Early Bird Block Rewards
Pre-Mine is a situation where some or all of the initial coin supply is created during or before a public launch.
What is Pre-Mine?
Pre-Mine is the production of a certain amount of cryptocurrency before it becomes publicly available. In the cryptocurrency world, pre-mining is a practice similar to selling a stake in a company to employees before the company goes public via an initial public offering (IPO).
Ethereum, the second largest digital currency by market capitalization, is an example of a cryptocurrency in which a large number of coins were pre-mined before the ICO. Unlike Bitcoin, for example, pre-mined coins are usually stored in a centralized body such as Ripple (XRP). This digital currency was designed for a centralized payment system that provides faster and cheaper ways to transfer funds in partnership with banks. However, most of this cryptocurrency is owned by Ripple itself.
However, Pre-Mine remains a questionable practice for many because it breeds distrust among users. Many developers pre-mine and reserve large amounts of coins before an ICO without informing the general public. Then, when the cryptocurrency launches and prices skyrocket due to a shortage of coins, these developers bring their pre-mined coins back to the market, causing their prices to plummet and damaging the outsiders.
Pre-Mine should not be confused with Premine, a cryptocurrency with the ticker symbol PMC.